Consolidating finance

Assuming you do, you could take out an additional bond of R190 000 (the sum total of all your debts, excluding your home loan) and use it to settle your car loan, credit card and personal loan.This would leave you with a single home loan of R790 000 and a monthly instalment of about R7 110, excluding fees, charges and insurance.

(Source: A debt consolidation loan can be secured (for example, a second mortgage) or unsecured (for example, a personal loan). A secured loan is one that is secured by an asset – be it your house or car – which can be repossessed and sold if you are not able to repay the loan.

For this reason, you pose less of a risk to the credit provider, and therefore more favourable interest rates apply than those offered on unsecured loans. With the National Credit Regulator “on the warpath” and the threat of a R300-million fine hanging over African Bank for alleged reckless lending, credit providers have lost their appetite for debt consolidation, Ian Wason, the chief executive of Intelligent Debt Management (IDM), says.

“You should therefore use debt consolidation to save on interest, and not to reduce your longer-term monthly debt repayments,” he says.

The other big danger of using a home loan to consolidate your debt is the risk of losing your home if you default.

On the other hand, credit cards, store cards and short-term loans incur interest of anything from 21 percent a year to 32 percent over six months.For this reason, many people use their home loans to finance big-ticket items such as appliances or furniture, making sure they don’t stretch the repayments for such depreciating assets over the term of their bond.It would be foolish to take money out of your home loan to buy a R15 000 television set and spend the next 10 or 15 years paying it off.For people who are in danger of defaulting on their loan repayments, Penwarden says debt consolidation may be their only option.“Certainly debt consolidation can be a lifeline and is preferable to a judgment or a repossession of your house or car.But it would be true for many people in debt, and the remedy for them is behaviour change – such as learning to live on less – not more debt.